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HomeMy WebLinkAbout1998 04-07 SpecialMERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 The special meeting of the Meridian City Council was called to order by Mayor Robert D. Corrie at 6:28 P.M. MEMBERS PRESENT: Glenn Bentley, Ron Anderson, Keith Bird. OTHERS PRESENT: Gary Smith, Bill Gordon, Shari Stiles, Tom Kuntz, Will Berg. ITEM NO. 1: REVENUE FORECAST REPORT FROM DAVE EBERLE: Corrie: At this time I will open the meeting and invite Mr. Eberle to speak to us. Eberle: Thank you, Mayor, Councilmen. I'm David Eberle of W. David Eberle Consulting, Inc. Business address is 760 Harcourt Road, Boise, Idaho, and this evening I am to present a revenue forecast that I had completed for the City of Meridian on January 25, 1998. Given the informality of this particular meeting, I guess get questions or confusions at any point, let's just stop and cover them, I think I'll just generally start page 2 after the executive summary. And just kind of go through the methodology, the results, and some of the interesting attributes of your budget for you. And then talk a little bit at the end how this fits into capitol improvement planning which the forecast is actually a first step towards developing a capitol improvement plan for the city, so we'll move into a more general discussion at that point. The first thing, talk a little bit about forecasting. Two ways to forecast. One is called a causal model and all that you are doing there is you are going to each factor and so you'd look at number of building permits, and then look how many building permits are going to go out, and then you are going to look at each revenue producing unit, and look at the underlying factors that will make that either increase or decrease, and that's called a causal model. They are very complex and quite sophisticated. The other way of forecasting is to simply say like weathermen do the best predictor for weather tomorrow is what you had today, and that's time series. So you take last year's data and saying if you've earned "x" last year, you will earn at least "x" this year. Then if you back a few more years and say you have grown on an average of "y", then we can take this year plus "y" and come up with the next year's growth. Those are very straight forward and much simpler to use. In fact when you look at the literature on this particular issue, there's really no statistical difference in the quality of the forecast between the two methods. However the causal gives people more comfort because they can get into the detail, particularly accountants and whatnot who like to see it. But in terms of validity for projecting expected revenues, they both predict fairly well. The second thing to remember about forecasts is they are simply a marker in the sand. Whether it's causal or time series, what you are really saying is that if the future behaves as the past did, we'll be there. It doesn't matter which model because you are using historical data to get there. So assuming the future is like the past, this will be the outcome. Well, the one thing we know for sure is that the future is never like the past. It never has been, but it does provide you a marker so as you move towards that point, MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 2 you can see whether your revenues are above or below what you projected, and if they are above, you can count on surpluses, and if they are below you know you need to get your cost cutting measures out. And that's really the function of a forecast is to provide decision makers with a marker so that you have a better idea of where you are headed down the road. Now looking at the time period, if you want to go out ten years, you should look at ten years passed. That's sort of typically the way you do it, so you have ten years of historical data, take you out ten years into the future. When you do a ten year forecast, and I am going to refer you to page 7, briefly here, your closest point to reality will probably be in year five. So if you are going to do a five year forecast, you really should be doing ten when you are using historical data, because what happens one year out the best way to do one year is you really sit down with your departmental managers and you go through the accounts and you know how many light bulbs and you know what the janitor costs, and you really get a good close handle o it. Rather than a historical average which takes several years into account. And of course by the ten year period out, what happens is that there are enough underlying changes that will occur that will deviate from what you projected to make a totally different scenario happen. You have a recession that you can't forecast. We find out China gets too excited and lets loose their nuclear bomb. You never know what happens, so this particular graph just shows you typically the variance above or below an average. We're probably closest five years if you are ten years out. And that's what this particular forecast does is uses ten years data which really then says the fifth year is the year you want to look at. Next year won't be that accurate. Ten years out won't be that accurate, but the fifth year will probably be a pretty good guess. On page three just to give you an idea, you begin to look at some of the issues, and one of the things and this comes into the capitol improvement plan, someone needs to start collecting the demographic changes that are occurring in Meridian, and you'll want to do that by population, probably by race. You'll want income, housing stock, and other information because one of the things you'll see on this — did you not get page three? What happens if you look here, look at your population change in that seven year estimate. It's just horrific what's happening and the character of the city is changing so fast that your preconception from what you think you know about the town could rapidly become outdated, and this was really one of the challenges that — this is one of the challenges confronting the city, and all departments at this point is what you think you know probably isn't true because of how quickly you've been changing, and on page five, it shows that even more dramatically for you. One of the things that I've done is taken some sub groups of the revenue sources for the city and what you have is the first two items. The item is to aggregate, your general fund. Then I break out from the general fund to property taxes, building permits and state apportionment and of course the public works is what you call your service funds. But just to look at what happening is that you are changing from `96 to `97 18% increase in your revenues. '96 to '95 was a 25% increase. Now this two year trend, it's decreased a little bit. The ten year MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 3 average increase is 56% per year. That is the average increase of your general fund which tends to tell you that every three years, you are doubling your revenues. This gives you an indication as to why the numbers by ten years out look so wild. The issue here, will your growth continue at this rate? Bird: Business wise I hope so. Eberle: Well, except that it's just so difficult to manage the revenues and costs when you are growing this fast. And you come down to looking at your building permits. That's 184% per year. Bird: And we took a drop last year. Eberle: Right. You actually decreased 20%. This is the kind of variability that really makes for a wild ride. I think it's called "riding the tiger." And the city really is when you look at these numbers. They are just dramatic, and so using the historical data to predict forward, I had a great deal of renaissance in suggesting that this is what's going to be ten years from now. I left these in, but I also then took a serious factor and dropped them down to about 12% which what you will see later in the report is I gave you an upper boundary and a lower boundary for the forecast. The upper boundary are these growth rates you see here which I — maybe you will make those, I have no idea. If this drop becomes a trend, which I don't know, on the general fund, it shows you are increasing at a decreasing rate. Right? 25% '95, '96. 17"96, '97. Maybe it will be 15% '97, '98. 1 don't know until those numbers come in. I picked a growth rate close to about 12% on the conservative side. My guess is in the next five years, you will probably make that. Those are probably safe numbers even if Asia explodes. And it will impact this valley, because of our agricultural foundations. A lot of products now move in that direction. One thing about the model that deeply concerned me were these growth rates. The next thing that I needed to do here is on these numbers decide not only doing general fund, what particular sub account should I forecast on. And so on page six gives you an idea of how I broke out the general fund. I forecasted the general fund by itself on its history and then I forecasted these particular sub — well a number of these sub categories. One of the things that you see is that out of the general fund, property taxes are 43% of your budget. Now, that's good and that's bad. It's good in the sense that it is a reasonably stable revenue source, and so from year to year you won't expect it to decrease dramatically, increase dramatically. You won't see the kind of things you see on the previous page for example with building permits which actually fell 19%, and that can be devastating if all your revenues fell because you will have you operating expenses. Your second largest category is building related permits. Now that is very volatile. You have two revenue categories here. You need to watch out for. Building related permits and once the parks program goes, and it's down here under recreation. MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 4 It's not very large yet, but in your account 350 are your parks impact fees. The thing to keep in mind is when economic growth slows in the valley, property tax growth rates will slow. In other words if you made $5,000,000 from property taxes last year, this year it might be 5.1, 5.2 Building permits will go negative on you. You might have made three million from last year, this year you might make 1.5 million. It will actually drop the amount of money. The two accounts are business related permits and your park impact fees. As a matter of fact all impact fees will do that, because they are growth driven. If your building permits drop off, or building drops off, those accounts go negative on you. And that introduces a volatility. And one of things you can see here is that building permits is a very substantial portion of your revenue. State apportionment again as long as we don't have any more horrific acts of God and the future governor doesn't rob it to have to pay for flood damage or earthquakes or whatever, again the state apportionment should behalf similar to your property taxes. We go into recession, you may see a modest decrease, but it will be temporary and it won't be dramatic as you will in the other accounts. The down side to your property tax and all of us have lived in Idaho long enough to know now that there is a real resistance to the use of property taxes. People will give you lots of arguments as to why we shouldn't have them. They're regressive, they're capricious. They don't match the services, they go on and on and on. Irregardless of irrationality exists, and there's two way you need to watch out for on this one. One is simply a one percent initiative. Right now we are in essence operating under that, but it can't increase more than three percent per year in the value. So it's not going to be a fast grower for you. That restriction is already on there. You can't increase the revenues greater than three percent. The second thing you need to be careful about particularly in Meridian is what the democrats have been proposing to the legislature to head off the one percent, which concerns them greatly. And that is increasing the residential homeowners deduction. If your property is predominately residential, and they dump that deduction up, you take a serious one time hit to this particular revenue. And the more heavily laden you are with residential relative to commercial, the worse it becomes. Now you are escaping through that period as far as I can tell by driving around is that your commercial sector really is starting to develop, and that's a positive you should encourage. You want that mix for revenue base. You get into trouble when you have — it's like anything else, you don't want all your eggs in one basket. Well, the same adage appeals here. Now when you move towards your business, one of the areas that's very small, your franchise fees, and I notice you don't have Idaho Power in here. You are hooking them up? That will be done this year hopefully, because under deregulation, you know, they may be slipping out from that if it weren't already imbedded. So things like franchise fees, business fees, you know, are very small proportions, but there's something you could look at that if the specific services you provide to get them in. For example, the City of Boise as you do contracts with Ada County for cleaning the roads. The one thing Boise found is that downtown needed to be cleaned more than once a month. Whereas Franklin Road, that's fine. Downtown Boise, where there are lots of shoppers and particularly where the dirt gets into the gutters, it looked bad. So they created a business improvement district where MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 5 they actually pay Ada County more money to clean the downtown area. But as you look at particular services that promote commerce be aware there are ways of bringing that funding in. Don't rely purely on property taxes. It's always easier to get — as my tax professor in graduate school always said, and it's true adage for all public officials, you want to pluck the chicken with the least amount of squawks, and that is not a cynical statement. If we were to get all the taxes and force consumers to pay it at the beginning of the year, 42% of their income would be gone. No one would tolerate that. Because it all comes in a lump sum. You need to spread it out for when the transaction (inaudible), and when you do that people want the services. Take the service away and you find it out. It's just they don't really want to see how they are paying for it. And so it's this (inaudible) almost that you need to do with your revenue collections to tie the revenue collection with the service whenever appropriate. That's why impact fees have become so popular. Because the new development is imposing the new cost for the fire station, for the new schools, for the new roads, and they are saying, well then you need to pay a portion for the parks, and you know, there's a general acceptance to that. It's different than the old averaging system that we used to use, so what I've done is I have forecasted by property taxes, by building related permits, and state apportionment, and other, and that's on page eight. So what you will see here is there's a series of categories that have been picked. What you'll find is if you look back on page five, they have different growth rates. So whereas in the general fund it averages all out. If I do it individually, I'll get different trends, and therefore they won't necessarily add up when you look at the different categories, but they are not meant to. It does help to identify trends particularly for building permits where you have got hopefully dedicated funds to the building department and building related issues to developers. I mean they really don't like feeling fleeced by building permits. It should be tied. There's legitimate reasons for that. And certainly the public works fund services again dedicated. So then when we look at these, you'll see there's two columns, given your (inaudible). So 1987 on page eight looking under general fund, you'll see $986 in the two columns, and what that says is that's an actual number. In 1987 that the general fund budget, our revenue collected was a little million dollars. By 1992 that had grown to over two million dollars and '98, you are looking at a budget in excess of nine million dollars. If we were to project this growth rate into the future, as you have historically — that's why it's called the historic general fund, it would say some where five years out, you'd have about 24 million, but notice this is a compounding. You are increasing at an increasing rate. Sort of like what a virus does in your body. By the year 2007, you've got this absurd number, and I can't justify it. I just — you know, I don't even want to write them down, except that is what the statistic say. So then the adjusted growth, basically I just whacked it down until I got something that looked fairly reasonable. There is no good rationale for doing that. If you go just passed page 15, you'll see Appendix "A". The first one should be under Appendix "A", the general fund growth. Is that what you've got? All right, this a pictorial of what you are seeing on page eight, and what you've got in red is the historical growth and as you take the green, you see it going fairly flat from '87, '89 it starts its increase. There's a bit of hitch in there because you did level off '96 MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 6 and '97, but basically if you were to follow that curve, you'd find that the red line is basically just a non-linear extrapolation of the history. So I basically brought it down to a linear trend in essence. Technical jargon, if you want to know what logarithms are, logarithms just linearize flatten out non-linear line. So in essence the natural log of the historical growth. All right, it's a statistical technique. We just flatten the line out, and that's what I've done. Bird: That's probably more realistic then, David. Eberle: I would think it's more realistic and if it were my business and I were force to project, I would be looking at the green line and planning on that and taking the extra funds and be looking at some of those longer term infrastructure projects that would be beneficial and if you can build things on cash, you save yourself the interest. And that's one of the things you can do with that surplus if you are conservative on your fiscal budgeting with the green line, anything that goes above it goes straight into a capitol building fund. And you know you start operating a cash basis to build future infrastructure. You're in good shape. So you can look at table four two ways. Either the numbers themselves or flip back to Appendix "A" and actually look at the graph. There's nothing wrong with taking a midpoint and literally just taking a pen and drawing a line and saying well, we could possibly be spending somewhere in the middle and being okay, and you probably will within the next four to five years. And this obviously deteriorates the further out you go. It's something that should get done each year. It's a matter of course, and so you've got next year's budget plus five years out. And you always have that each year, and that five year changes so that you can anticipate (inaudible) numbers are deteriorating. It also means you have in place the mechanism that if the state legislature ever decides to change your revenue funding sources, you've got the historical data to go back and re -compute and calculate what the potential impact will be on your firm. Table five is the median in between the two. And I will (inaudible) shortly. This is actually the mid point between the upper and lower, table five. So this is as if you've drawn a line in between them. Well, it's what I would probably consider the upper range. I would consider this the upper range. The adjusted historical, I would consider the lower range. And I think you will be fiscally conservative. It just worries me so forecasting on 65% annual growth rates. I mean I would love to have a company do that. If it's going to continue. It just really make me nervous to even have these kind of numbers published just because they are so dramatic. And it really says what a remarkable job the City of Meridian has done under these kind of growth conditions. Bird: And this is the thing and I think you are right when we say we have to still be conservative in taking any extra and then we can do our infrastructure stuff without having to finance it or anything. MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 7 Eberle: Right. Starting on page ten, I basically just talk about some of the issues that may be affecting the general fund and then each particular revenue account. In the next two to five years, typically one of the things and particularly if you are going to deal with revenue forecasting is that recessions give you lots of warning. They don't happen out of no where. For a recession to occur, there's got to be two quarters or half a year with economic indicators are actually going negative. And so that gives you time for what they call leaving indicators, which means the stock market starts to fall. Coincident indicators which means earnings reports on businesses start to fall and lagging reports, the unemployment rate starts to rise. I mean there will be lots of news. Somebody will jump the gun, and you know, you watch this at all, you'll see it happen. Someone will jump the gun. One month unemployment will go up. Boy they will get an economist out there on the news telling you, "Oh, baby, it's a recession." Man, you got to wait six months before you really know. A lot of times it will go up, flatten and then start to go up again, and in fact that's been our periods, our pattern since '92, which is really the last recession, because we've grown, flattened out, grown, flattened out. And there are a number of reasons why we are doing so well. The stock market makes me a little nervous just because it's so high with price/earning ratio. But the reason is that our infrastructure nationally our plant and equipment had gotten old. It used to be about eleven years average age plant. We let it slip to eighteen years age. What we're doing in the 1990's is we're rebuilding that plant — that means some plants are brand new, some are twenty five years old on the average. We're bringing that average age down and that's really what's prompting this growth in the `90's. It isn't anything mysterious. What could stop reinvestment would be a collapse in Asia. I think if you saw that, you would expect the City of Meridian revenues to fall off first through your state apportionment allocation. That would go because sales tax would fall sale, Micron Technology, H.P., Agricultural Exports, timber, which is an agricultural exports, all those would start to fall. So if you see that happen, plan on telling your managers, you want to slow down. That probably is the biggest cloud on the horizon. I'm a little worried about Sadam Hussein. Always wars decrease any kind of activity. And high anxiety means that, so as far as I can tell, there really isn't anything that's going to adversely affect your revenues from the economy standpoint. The only other thing would be watching the legislature to see whether they are going to pull a stunt on property taxes, and it's why you need to look in my opinion for city growing at this rate needs to look at impact fees as an alternative to funding infrastructure. Impact fees require planing by law. It's not an option just on fiscal management. Legally you need to do that, but what it does do is while you are growing, you are collecting the money to put that infrastructure in place. And you won't find yourself in a situation, putting a bond out expecting your property tax to pay it over the next twenty years, and then getting whacked on the way that you are able to collect the revenues. I don't know where it's — I keep thinking it's death, and you know, it just keeps re-emerging, and clearly it's there. Property taxes, we've talked a little bit about what's going to happen with them and who knows. Clearly your property taxes will grow more if you promote commercial because the value is higher. It's higher on the land and higher on the building. MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 8 Bird: No 50% -- Eberle: Well, yeah. No homeowner deduction on that. Really, it's — if you look at residential land, you know it will be $12.00 to go commercial and will be $24.00 per square foot. And then the building is typically is multi -story versus single story. It's why the property taxes tend to go up, and again you know a two story commercial structure takes the same fire truck as a one story ranch house. And yet you are collecting more taxes that can be used for the fire department so they become a little less expensive to service. Now, multi -story, it doesn't, because then you've got to purchase the equipment to handle tall buildings and special training and whatnot. State apportionment, you know, I basically on this one, watch Micron and H.P. They come out and say they are going to lose money this year, your state apportionment will fall. It's really scary that they have that large of an impact on our sale tax, but they do because they are so large. And that's an easy way to see whether you are going to get the money. Again, I don't see anything on the horizon that suggests our economy is going to stall out in the next twenty four months, and beyond that it's impossible to say. Business licenses are small. I think it's an area to look at. If there are services that you can tie directly, it's called a user benefit tax, in fact. That the beneficiary is the one paying the tax, rather than averaging it. Property tax is an averaged tax where everyone puts in and the beneficiaries get paid out for the service. It isn't as direct a tie. And I don't know where the political winds blow on this one. But it just seems to me that people are clambering for user benefit fees rather than an average tax system, and that may be the way you need to go in the next, you know, it will check. No doubt, 20 years from now we will be back to property taxes, but it's something worth looking at. And particularly Idaho Power Company, and I'm glad to see that you are going to do that. And there's plenty of justification for it, because taxing a business is what is called an indirect tax. If you tax a citizen, it's a direct tax, because a citizen can't hoist it on anyone else, whereas a business can typically shift it through their pricing on to the consumer. So the thing to keep in mind if you move this direction, if you tax one business, tax them all. And that way you keep the competition on a level playing field. And that's important. Recreation, you're wildly behind on this, but it's not surprising. With this kind of growth, parks really are down the list. It's water, sewer, roads, police, fire, you know, those you need to do, and now I think you are having a large enough staff, you're considering recreation, but what you do find when people talk about quality of life, this one figures in prominently. They take for granted what Gary does with water. They take for granted what Gordon does with police. But if the park isn't there, then they are upset. So this is an area that you've got the impact fees started, and I think with additional revenues, this is an area to watch because it will grow dramatically on your budget. But remember whatever you are using with the impact fees, they will tend to fall during times of slow growth. They will actually go negative and you need to be aware with it. Your service funds, the water fund and the sewer fund, basically they are a user benefit fee. Because they are directly tied to the benefit of the water and the MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 9 sewer hookups, pay your hookup fees, you pay your monthly fees for water. I mean it's a self contained system. And because of that you have far greater control over what revenues you collect by managing and looking at those revenues along with the growth, you're able to adjust the fees to match the expenses that are tied to growth, and so these are really different than police, fire and building, because those departments don't have control over the revenue source as you do with the service funds, and so these with proper management as it appears you have had are looking solid and you shouldn't have a great deal of trouble there. I don't know what else to say on that. In conclusion basically as again on the front page, you've got a good base. You need to watch and diversified to the greatest extent possible and that you mitigate any unexpected down turns. You also by broadening your base diversify the sources so that you stabilize the income. The worst of all worlds is to have an income base that jumps up and down forcing layoffs and rehiring. You lose the training. You lose the expertise. And you also tend to destroy morale (I want to spell that correctly.) Beyond that woe the rest of this stuff. Just for Will. For your financial, this is the data base, the actual numbers that went into it. And the mechanism as to how it's done. You really don't need to look unless you want to look at how the numbers were averaged or where they go. So that is your forecast. I'm sure that 90% of the cities in the United States are wildly jealous of a forecast that would look like this. They probably don't want your growth but they'd sure like the revenue growth on it. This was originally done because Shari was charged with the responsibility of developing a — or updating a capitol improvement plan for the City. What you know is that part of the comprehensive plan has a component capitol improvement plan. The way that stands now, you've got everything but the kitchen sink thrown in there. Capitol improvement plans mean items that will last the city ten years or longer. It shouldn't have number of employees in it. It should only have the infrastructure of the fire house, city hall, parks, items that are durable and that are going to last longer than ten years. You really cannot plan for new capitol improvements until you have some idea of what your revenues are going to be, nor can you really plan on a capitol improvements until you have some expectation for what your operating expenses are going to be, and that's your manpower, personnel and your contract services that move out. You need to forecast those items, deduct it from your revenue source and that gives you the difference or the incremental amount that you then have available for building durable capitol equipment. And you are able to decide do we need to bond this? And if so how much can we afford as a bond without disrupting the operations of the city. So really what we're coming down to at this point is improving the planning process for the city. Because the capitol improvement plan is not something on the outside that can just overlay. It is integral and must be generated from each department. So one of the things that I also did for Shari was go through a capitol improvement planning needs assessment. And really was a cursory interview with each department as what they are doing, how they're doing it, and what they see as some of their needs. Mayor, did you hand that out so they all had a chance to look at it? MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 10 Corrie: Not yet. Eberle: Basically there's no surprises in there as to what the recommendations are, and before I get I want to spend a little bit about what a capitol improvement plan really should be. For each department, whether it be the fire, or the police or administration for a city hall, some of the issues you first have to do is to look at and identify what's the appropriate service level and what service level are you currently providing. So where the ideal is, where you are relative to it, what are the commitments for the remaining service capacity you have. (Inaudible) have been forced to do this with sewer. Heaven knows that's one of those of things you really don't want to run short on. You know, what's your remaining capacity which gives you your time line and where are the existing deficiencies you need to recover. So you've got to through the planning process and develop a base line. Then you need to identify what's the project that needs to take place to maintain the service level you feel appropriate for the City of Meridian. That's your second step. Now based on the first decision, some of those plans are ten years out. Some are two years out, some are five years out. Each one requires a different strategy. Ten years out you can simply use a per square foot ratio for a new fire station or city hall because ten years, I mean who knows what it's really going to cost. $100 a square foot, we need a 5,000 square foot building, bingo, you've got an estimate for ten years out. If it's two years out, that isn't going to work. Because if you are hoping to have it built in two years, you better be looking at architects, engineers, land acquisition, all those steps. You need to be very detailed. In five years, you are obviously somewhere in between in that process. So again you need to be looking where you are at on this. That of course is the step, developing the time line for building the new projects. When do we need to start looking at hiring an engineer, hiring an architect, hiring a financial advisor, an underwriter if it's going — looks like it's going to need to be funded by a revenue bond or something else. And that is something you should do each year. Obviously the first year you start this, it's a horrific management initiative. Because you are starting from ground zero to make it, and you can expect to not be perfect, and yes, I used of seat of pants estimates to get it done. But once you've gone through the process the first year of identifying service levels, remaining capacity, deficiencies, what projects to remedy or maintain service, time lines, once that's all in, the next year through is a lot easier. And the third and fourth year through it becomes easier still. Much of it is already started. Your annual budget, you basically have to do a one year forecast now. And basically taking it from last year what to expect this year. That needs to be broken out between operation and capitol. What do I need next year? What do I need five years out? You need to have the five years out, and you probably should have the two years out, because the two years is when things start happen. When you are starting to actually develop a project, that two year forecast becomes terribly important. If you are not trying to build for five years, a two year is just a linear extrapolation of a one year. It's not important. But you really need that for when projects start to develop. And that needs to be done every year as a matter of budgeting. When they are doing their annual budget, they are also doing a MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 11 two and five year forecast for operations, and they are doing the same for capitol improvements. You tie that with an annual revenue forecast, now as decision makers on behalf of the citizens of Meridian, you are able to look at capitol requirements as your department heads see it; the projected revenues that you are likely to have and you can make a pretty good decision as to whether or not you can go forward or what basis you can go forward whether you need to bond it, whether you can pay for cash flow basis, or whether it's some kind of mixture that you can look at. You might prefer a like what Ada County's doing with their court house and do a lease buy back arrangement because you've got the cash flow and allow all the financing to fall on private hands. You don't have to deal with any of that. But you're confident in having the revenue stream to be able to go forward on that basis. Now capitol improvement plans could also take one more step and that is to look at an impact fee program. That each time you get these and what an impact fee program simply states is that the portion of the new structure is caused by new development can be charged to the new development, and there are several steps that you need to do that. First you've got to figure out a mechanism for allocating what portion on a rational basis. Then you need to figure out an appropriate fee ratio mechanism, how much is a residential, how much is a service, and then it's simply tied into your building permit basis. The (inaudible) to this is you better be building within ten years if you are going to get your money back. You've got to know you're going forward and you see with — once you've the plans in place, once your forecasting is a matter of course and these things are just happening you're provided with those numbers, you have the kind of confidence to be able to put those program into place and not stay awake at night worrying about, gee, you know what happens if we don't raise enough money and we have to give the money back, or we started buying it and we're committed to doing this on some kind of financial arrangement and have to stop. That is basically where the revenue forecast should fit into capitol improvement planning. So then I looked at a needs assessment report and came up with some recommendations, and really you know at this point they are very elemental. You need some form of foundation for making a one, two, and five year needs forecast for both operation and capitol structure. Those typically are your demographic indicators. In talking one preferred Idaho Power's report and another department preferred Boise Water hookups or their own hookups and you have a number of demographic indicators that feel good as to the type. Well, that should all basically have someone collecting that data into a comprehensive report that becomes available at a certain time of year so that department heads aren't having to allocate resources to collecting that. There should be a clerk who simply calls Ada Planning, simply calls Idaho Power, it's now John Church, simply calls Boise Water, whatever the demographics that the departments want, and it comes in annually, gets updated annually, and you have the process, it's formalized so that the data is there to make the forecast. Each department needs to generate what their indicators are then tell them where the growth is. The Fire Department has certain miles per truck. Police has population per officer. You'll come up with your ratios. The next thing that needs to be done is quite simply someone needs to be in charge of this. Somebody needs to do the MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 12 revenue forecast, collect the departmental forecast and put the two together and see where you are, whether in fact that the needs exceed the wants. Or rather the needs exceed the revenues. You need to have someone put that together so somewhere along the line, you know that's an organizational decision by the Mayor, that needs to get done. Additionally, you'll want to make it as easy as possible so you really want to have it done on the same program so the person compiling the data has it coming in a format that's easily accessible and it really becomes a two way street because what will happen after the first couple of years is the department heads now will have someone over in finance has a historical data all lined up, because each year they put in last year's plus forecast. Now that's on record and as you start to forecast, now you've got some historical data by department and not only that but by each sub account. So you've got your janitorial and your light bulbs, your utility bill and you can begin to see, oh gee, we really need to (End of Tape) -- rechange light bulb and you laugh when I talk about light bulbs, but I'll tell you, they are expensive. And oh, we changed vendors, and boy you know it will show up and you're to able to save money. It becomes a very efficient planning tool and it also facilitates and down the road, granted first year is pain and suffering, but down the road it becomes much easier for the department heads to manage their budgets much more efficiently. Ideally you want to get networked given that you are in a multitude of building, it really isn't there at this point. I think using either e-mail or simply just get and walking it are your best bets. I think anything beyond that is probably just excessively expensive. Anderson: (Off the microphone — inaudible) Eberle: You know it can be. I think you know, on a need basis would probably be smart. Not all machines need to linked. You get into issues of site licensing versus individual licenses, software, and I think there are a number of things that would drive that. You know for example I would the Mayor's office and the Treasurer's office should be linked and the Treasurer with the City Clerk should be linked. I mean those are obvious links that would use similar numbers and want a reporting issue. But I think those come along as you grown, and again given the change in technologies, you want to be fairly cautious as to what you spend on your money right now. Even I being an economist get trapped and waste money you know on computer equipment. I'm about to go back to a lease and the heck with it. I'm just going to pay them $50.00 a month and you know, turn my machines in. There are a number of next steps that can be taken that I think I'll just briefly mention, but not get into. If this is something the City decides to go forward with, you'll need to sit down and start interdepartmental process, that each department understands what the forecast process is, provide the resource to help them, because clearly under this kind of growth, they've got full time jobs already, and to provide them the resource to get the forecast up really is not only responsible, it will pay you big dividends and "A", it gets done, and "B" it gets done with enough MERIDIAN CITY COUNCIL SPECIAL MEETING APRIL 7, 1998 PAGE 13 attention paid that it works as you know with the insurance fund, it can have problems it not appropriate attention is paid. You get ones done by each department and even the departments that don't have capitol improvements, they need to have operational, you know, do you need more clerks, do you need more accountants, do you need more billing personnel because you need to add that in to se where your revenue surpluses or deficiencies may arise. You get it done and then you plan one year to go back and find out what the experience was, and get it done for the second year. Because by the third year out, it should become routine, and a valuable planning tool rather than a burden. And I think if done correctly, that can be achieved and actually probably relieve time down the road, whereas right now the next two years you'll have increased time. So basically that's what I have. Thank you for your time, Mayor and Councilmen. If there's questions which undoubtedly there will be, my number — please call. I think it's terribly important to understand there's no such thing as a dumb question. Sometimes just talking about it, you know, clarifies issues. This is what I do. You do other things that I don't know about. So this is not stratosphere stuff. It really isn't. Bird: Maybe we can sit down later on closer to the budget time with you, David, if you don't mind. I make a motion that we close this special meeting. Bentley: Second. Corrie: Motion made and seconded. All in favor say aye. MOTION CARRIED: All aye. MEETING ADJOURNED AT 7:30 P.M. (TAPE OF THESE PROCEEDINGS ON FILE) APPROVED: ROBERT D. CORRIE, MAYOR ATTEST: WILLIAM G. BERG, JR., CITY CLERK